Metcash sells auto unit to Burson for $275 million

Metcash has agreed to sell its automotive business to Burson Group for $275m and announced a net loss of $384.2m for the year.

Grocery wholesaler Metcash has reached an agreement to sell its automotive business to Burson Group for $275 million, after deciding against spinning off the division in an initial public offering.

The company said it expected to receive net proceeds after tax from the sale of around $210m, with the deal expected to be completed next month.

The announcement came as Metcash (MTS), which supplies the IGA supermarket network, posted a net loss for its past financial year, after previously flagged goodwill reductions, and warned of increasing headwinds in its largest business.

“The difficult trading conditions currently being experienced in the food and grocery pillar are expected to continue in FY2016,” the company said in a statement to the Australian Securities Exchange.

Metcash chief executive Ian Morrice said the sale of the automotive division was an attractive deal for shareholders and provided certainty of completion.

“We will redeploy capital to strengthen the group’s balance sheet and investment in our core businesses,” he said.

“The automotive business will become part of a sector specialist owner with access to the capital needed for expansion of the business.”

Metcash said it had held preliminary discussions with potential investors since announcing on May 14 that it was investigating a potential IPO.

The purchase price for the division represents a multiple of 9.9 times fiscal 2015 earnings before interest and tax, according to the company.

The Metcash automotive business includes the Autobarn, ABS and Midas franchises as well as a parts and accessories wholesale operation.

Burson said the acquisition would be funded through equity and debt, including a pro-rats accelerated renounceable entitlement offer to raise $218m.

Metcash today also announced a net loss of $384.2m for the year ended April 30 compared with a year-earlier profit of $169.2m.

The result included previously flagged significant charges of $577.2m after tax, related mainly due to a goodwill reduction.

Sales rose 1.7 per cent to $13.6 billion from $13.39bn while underlying earnings before interest and tax fell to $325.1m from $390.3m a year earlier.

The company did not pay a final dividend after announcing earlier this month that it was suspending payments through to the end of next fiscal year in a bid to shore up its balance sheet.